MOSCOW, May 19 -- OAO GMK Norilsk Nickel, the world's biggest producer of the metal, plans to cut its dependency in favor of higher-margin copper output.
The company, which generated half of its sales from nickel last year, will cut the share to 35 percent by 2025 and increase revenue from copper to the same level, Moscow-based Norilsk said today in an investor presentation in London. Copper contributed 26 percent of the company's sales last year.
"Markets have shown us that copper is a higher-margin product than nickel," Denis Nushtaev, an analyst at Metropol brokerage, said by phone in Moscow. "The problem is, Norilsk's main ore bodies carry mostly nickel and if you don't maintain them, to focus on copper, you'll see a drop in nickel output."
Norilsk raised nickel production in 2007, when the stainless steel ingredient peaked at $51,100 a metric ton, beating Xstrata Plc to buy LionOre Mining International Ltd. The deal cemented Russia's largest mining company as the biggest nickel producer and led to almost $4.7 billion in write-downs the next year as the metal fell to as low as $9,085 in London.
Nickel for three-month delivery rebounded 14 percent this year to $21,200 a ton, the best performance of any industrial metal on the London Metal Exchange. Norilsk expects nickel to average $20,000 a ton, and copper $7,100 a ton this year, Chief Executive Officer Vladimir Strzhalkovsky told reporters.
Demand to Wane
Copper's average production cost is about $2,200 a ton, barely a third of the market rate for the metal, while the cost for nickel is $15,000 a ton, about two-thirds of the selling price, according to Neil Buxton, managing director of London- based researcher GFMS Metals Consulting Ltd.
Norilsk will start mining copper at its Chita region assets in 2015, Strzhalkovsky said in London today. The Bystrinsky and Bugdainsky fields in Chita hold 66,000 tons of copper and 12,000 tons of molybdenum concentrate, as well as iron ore and gold, the company said.
"We can't say they are a firecracker but they will turn a profit," Strzhalkovsky said at the presentation.
The company also expects to start processing copper stockpiles held by the Russian government this year and is negotiating on the price, he said.
Norilsk's copper sales grew 5 percent last year to 415,000 tons as the company sold from inventories. Output of copper dropped to 402,000 tons from 419,000 tons in 2008. Norilsk sold $4.21 billion of nickel last year, it said on its website today.
The company also plans to increase platinum and palladium sales to 25 percent of the total, from 22 percent last year. The balance will be made up with metals including gold and molybdenum, it said.
Norilsk, controlled by billionaire Vladimir Potanin and the world's biggest aluminum producer United Co. Rusal, plans to invest $1.23 billion to $1.32 billion a year through 2025, mostly on construction and upgrading facilities, it said.
Nickel demand may grow 10 percent this year and 4 percent in the "long term," on usage by stainless-steel makers and exchange-traded funds, Norilsk said. Global nickel output may rise less than 10 percent this year, it said.
Use in China will jump 15 percent this year on demand from construction and consumer-appliance industries, it said. The palladium market will have a 1 million-ounce deficit this year after Russia's government made no sales last year and is unlikely to sell from stockpiles this year, the company said.
Investor demand for palladium may reach 1.3 million ounces this year on purchases by funds including exchange-traded investments, Norilsk said.